Amidst Trade Spat, Chinese Growth Slows As Expected By Markets

There has been a slowdown in China’s economic expansion as had been expected by market experts who also believe that the results are a signal about the largely stable output amidst an escalating trade conflict with the U.S.

Compared to a year earlier, China reported a 6.7 percent growth in gross domestic output in the second quarter. The company had reported growth of 6.8 per cent in the same period last year and the latest figure was the slowest for the country since 2016. There was also a slowdown in investment growth and industrial output for June.

The statistics office said that compared to a market expectation of 6.5 percent. industrial output increased to 6 per cent last compared to a year earlier.

Two of the most recent economic policies of the Chinese government is supported by the continued steady growth in this quarter while going into the second half of the year – negotiating the potential negative impacts of the higher trade barriers put up by the US and the continuation of the multi-year campaign for debt control and a cleansing of the financial system. And with the government targeting expansion of 6.5 per cent, the world’s second-largest economy is forecast to slow in 2018 after good growth last year.

“Stronger retail sales offset the decline of industrial production in June. Thanks to the new economy, China managed to sustain a stronger growth momentum,” said Raymond Yeung, chief greater-China economist for Australia & New Zealand Banking Group Ltd. in Hong Kong. He said that this suggests that the worries over the trade war are overstated.

A separate report indicated that there was a drop of 691.7 billion yuan in June in the amount of money lent through shadow-banking sector. This is being touted opt be the biggest net monthly drop till date.

The data for the first half of 2018 showed a “slowdown in investment growth caused by an obvious monetary tightening”, even as the government attempted to contain debt growth, said Peiqian Liu, Asia strategist at Natwest Markets PLC in Singapore. She said that industrial production and retail sales data is impacted by the slowdown because the index for consumption includes both household spending and government and enterprises-led expenditure.

China is facing a stiff challenge both economically and politically given that this month, there would be commencement of the higher trade tariffs as imposed by the U.S. on Chinese goods as well as a new threat of US tariff on Chinese gods worth another $200. Notwithstanding this, there are indications that the Chinse authorities would be continuing with their programs for reduce off-balance-sheet lending which can result in further depressed growth in the later part of the year.

“The intensifying trade conflict with the U.S. will start to weigh on growth,” said Louis Kuijs, head of Asia Economics at Oxford Economics in Hong Kong. “Robust consumption — it picked up pace in Q2, surprisingly — will continue to act as a buffer. Thus, amid some further easing of the macro stance, we expect the slowdown in the second half to be modest.”

(Adapted from Bloomberg.com)

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Categories: Economy & Finance, Geopolitics, Strategy, Sustainability

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